Hungary's central bank cut interest rates to a new record low of 4.75 percent on Tuesday, in an attempt to bolster the flagging economy, as inflation has eased to a record low of 2.2 percent. But the weakness of the local currency, the forint, could give policymakers reason for more caution, according to analysts.
"Investors are trigger-happy in Hungary, selling the forint on any news, because Hungary has a history of blowing up every now and then," Bartosz Pawlowski, head of CEEMEA strategy at BNP Paribas, told CNBC.
The forint–euro exchange rate is a key factor for the central European country, because in the build-up to the global financial crisis Hungarian families and corporates took out cheap loans denominated in euros and Swiss francs. That borrowing binge ended badly when the forint tumbled in 2008.